Carbon Pricing Costs And Revenue Recycling In Canada: A Progressive Analysis.pdf

This working paper investigates the costs and distributional impacts of carbon pricing in Canada, focusing on household energy expenses and potential revenue-recycling options. Using synthetic microdata and emissions data from Statistics Canada's Social Policy Simulation Database and Model (SPSD/M), researchers quantify direct and indirect carbon pricing costs for each Canadian province across various income levels.

Key Findings:

1. Progressive Nature of Carbon Pricing: The study reveals that the carbon tax is generally progressive, even without revenue recycling. Revenue-recycling options include:
- Means-tested sales tax (GST/HST) credit increase: Progressive.
- Lump sum dividend: Progressive.
- Sales tax rate reduction: Predominantly regressive.
- Increased basic exemption for personal income taxes: Regressive.

2. Impact of Large Emitters' System: The federal output-based pricing system (OBPS) for large emitters mitigates indirect costs, which otherwise exacerbate the impact of carbon pricing on households.

3. Net Costs and Revenue Recycling: The paper quantifies net carbon pricing costs to households under different revenue recycling approaches, aiming to inform policy decisions that balance environmental goals with household economic impacts.

4. Comparative Analysis: By providing a comprehensive analysis across provinces and income groups, this research contributes to the understanding of Canada's evolving carbon pricing landscape and its implications for Canadian families.

Methodology:

The study employs a unique combination of direct energy use data and indirect emissions intensity estimates from products to calculate total carbon pricing costs. This approach allows for a nuanced examination of the effects of various revenue recycling strategies in mitigating these costs.